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apply the 80 percent rule to them. What does that mean Run through the remaining 20 percent of bad addresses and pick out the Gold customers. Clean those up. As for the rest, forget about them for now. You want to send out emails to your customers. But some of them are on AOL and can read only text. Others can read HTML. Still others want their copy in Spanish. It is a big job, costing a lot of money and resources. How can you solve this problem Use the 80 percent rule. Pick the easiest 80 percent of your customers and get your message off to them right away. If you have a consumer database, AOL probably represents 80 percent. If it is a business-to-business (B2B) database, 80 percent can probably read HTML. Design your email for the 80 percent and get something done now. If the email is a success, then gure out how to reach the remaining 20 percent. If it is a failure, don t bother with the remainder. Either way, you have kept your costs down.
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Building a data warehouse for 100 percent of their customers and those customers data has proved to be very expensive for many companies. Most large companies that have built such a warehouse have spent at least $20 million on the project. Why is it so expensive Because a data warehouse is designed by a committee. It has to include all the data that an organization ever conceivably uses: data on customers, prospects, leads, transactions, promotions, responses, products, prices, models, and employees. Since the accountants are involved, the data in the warehouse have to balance to the penny. Since IT is involved, the warehouse is built by inhouse programmers who have never built a warehouse before; they are very excited by the idea, but they have no experience at all. As most people who have studied data warehouses will tell you, these warehouses almost never pay for themselves in terms of increased profits. Why not Because the bene ts of using a warehouse are incremental. The warehouse will enable you to do better targeting of your communications. Instead of getting a 2 percent response rate, you will get a 2.1 percent response rate. The question is, will the pro ts from the 5 percent increase in the response rate pay for the cost of the warehouse
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In most cases, they won t, and you can prove it to yourself with a simple Excel spreadsheet before you begin to build your warehouse. Suppose your company is taking in $156 million per year in direct sales to customers. The bene ts of a warehouse are shown in Table 101. That s very nice. Your warehouse has brought in 30,000 more sales, totaling $7.8 million more per year. But let s look at the incremental pro ts. Suppose you are making a 30 percent pro t on direct sales. Table 10-2 shows what would happen. Your warehouse will lose you about $1.1 million per year. So what should you do Use the 80 percent rule. Don t build a data warehouse that will retain all the data you could ever possibly need. Build a simple data mart that meets 80 percent of your marketing needs. Even the largest corporation in America can build such a data mart for less than $1.5 million total, with an annual cost of about $800,000. Table 10-3 Table 10-1 Warehouse Costs
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Current Number of offers Response rate Number of responses Sales conversion Number of sales Average sale Sales 100,000,000 2.0% 2,000,000 30% 600,000 $260 $156,000,000 Warehouse 100,000,000 2.1% 2,100,000 30% 630,000 $260 $163,800,000 Increase
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